Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1987-88 - Assessee-company claimed medical and travelling expenses incurred for providing medical aid to its managing director as revenue deduction - Assessing Officer as well as Commissioner (Appeals) negatived claim of assessee-company on ground that medical expenses were in nature of personal expenses - Tribunal, however, allowed claim of assessee - Whether in view of fact that managing director himself had no expectation of getting amount of medical treatment from assessee-company, payment so made to him could not be regarded as having been made on ground of commercial expediency to facilitate carrying on of business of assessee-company - Held, yes - Whether, therefore, such a gratuitous payment made by assessee-company to its managing directors was not to be allowed as business expenditure under section 37(1) - Held, yes FACTS The assessee-company claimed the medical and travelling expenses incurred for providing medical aid to its managing director in the U.S. as a revenue deduction treating the expenditure as expended solely for the purpose of business. Likewise the air fare of managing director's wife and another director who accompanied the managing director was also claimed as revenue deduction. The Assessing Officer, however, negatived the claim on the ground that medical expenses incurred by the assessee- company were purely the personal expenses, and even if the expenses were treated as perquisites, the same was to be regarded as a part of salary for the purpose of disallowance under section 40(c). On appeal, the Commissioner (Appeals) confirmed the finding of the Assessing Officer. On further appeal, the Tribunal held that since the board of directors felt that the services of the managing director were essential to the company and had passed a resolution also to bear the medical as well as travelling expenses, the claim of the company was justified and, accordingly, allowed the same. On reference : HELD On the facts of the instant case, it was clear that none of the tests laid down by the Constitution Bench in Gordon Woodroffee Leather Mfg. Co. v.…

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